Sky-high condo prices aren’t a supply problem

Posted on May 25, 2017 by Paul Liberatore

Have you heard the one about how supply is going to solve the great Canadian housing crisis?

If you’ve listened to the real estate industry or our political leaders, you likely have. A lack of supply is the great culprit behind soaring prices and the lack of affordable homes. Just build more condo towers and presto, problem solved.

Well, they’re building them in Metro Vancouver and Greater Toronto – lots of them. The Onni Group is now marketing a building in downtown Vancouver with units starting at $1.7-million. Another developer, Intracorp, is advertising Belpark, on the city’s west side, where you can get a two-bedroom, plus a den for $1.5-million. And on it goes.

These prices are not dissimilar to what people are being asked to pay for the stock going up in downtown Toronto.

This is the so-called supply that is going to solve our housing crisis.

The truth is the problem of high costs, and access to reasonably priced accommodation in our two major cities is not being addressed. That is a simple fact. People will say that the condo towers I highlighted are in downtown Vancouver, so what do you expect? Well, the fact is those prices set a standard for the region. They are driving up the cost of housing miles away.

The Canada Mortgage and Housing Corp. sounded this alarm just this month in a new report. “Increases in home prices in the city of Vancouver had a spillover effect in surrounding British Columbia municipalities,” the corporation said. And that effect was “measurable,” it reported.

The same thing is undoubtedly happening in Toronto.

Here is the other brutal reality about the great supply argument: vast swaths of these units are being built and presold to foreign purchasers. These buyers, in turn, are either flipping the properties for a profit before they are even finished or hanging on to them as safe investments and renting them out. Sure, that might help bolster the rental stock, but why are locals who earn incomes in Canada and pay taxes here being shut out from buying these homes?

The problem is this type of foreign-investment activity is helping drive up prices. Everyone knows it and yet little is being done about it. Some of these offshore purchasers are, in fact, flipping the condos for a profit before final sale and avoiding paying the 15-per-cent foreign-buyers tax in the process.

No, there is lots of “supply” in Vancouver and Toronto. That isn’t the issue. It’s who’s getting access to that supply that is a big part of the problem. And it’s also the type of “supply” being built.

Many of the condos being constructed are designed to be purchased by wealthy investors, the Lamborghini crowd. They aren’t being built for a couple of young professionals starting a family. Not unless you consider $1-million for 1,000-square-feet on the 10th floor of a tower in suburban Burnaby, B.C., reasonable. No, somehow, some way, governments need to encourage developers, through incentives or whatever it takes, to start building housing that the middle class can afford.

Right now, developers are getting everything their way. They are putting pressure on local politicians to speed up the approval process so they can erect more towers, more quickly, but they are doing nothing – nothing – about the costs of the units they are constructing. In fact, you could argue they are engaging in activity that is helping ensure the costs keep going up.

It’s ridiculous.

I understand that governments are reluctant to intervene in the normal ebb and flow of the market place. That is why the 15-per-cent foreign-buyers tax applied in Vancouver and Toronto was seen to be so controversial. But governments did it because they have an overriding obligation to the people they represent.

Right now, not enough is being done to protect the interests of average citizens as it concerns access to reasonably priced housing. The foreign-buyers tax had a momentary impact on prices in B.C.; now they are starting to escalate again, especially condos, which young people have been told is their housing of the future. Forget a detached home. So what is happening?

No, the great supply argument is a myth, a dodge. It is not solving anything. On housing, our political leaders continue to fail us.

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